Increased productivity and drop in inflation boost optimism and hiring activity for businesses
Increased productivity and drop in inflation boost optimism and hiring activity for businesses
- Output, Optimism and Employment Indices record increases together for first time in over a year, strengthening outlook for businesses
- February marks turning point for recruitment activity as Employment Index rises following five consecutive months of decline
- Inflationary pressures ease slightly but Inflation Index remains well above historic levels as recessionary fears persist
Growth in output and decelerating inflation boosted business confidence in February as recruitment activity increased, according to the latest Business Trends report from accountancy and business advisory firm BDO. Readings across three of four indices tracked by the report – Output, Optimism and Employment – improved simultaneously for the first time since January 2022, when fears of the Omicron wave of coronavirus and supply chain pressures were starting to ease.
BDO’s Output Index rose at its sharpest monthly rate since January 2022, driven by a jump in services output. A 3.18-point increase saw it climb to 94.10 last month, close to reaching the 95-point boundary between expansion and contraction after two months of sitting in contractionary territory.
This uptick was driven by a jump in he services output which rose 3.66 points to 95.42, reflecting weakening headwinds and an improved outlook for the UK economy.
The Optimism Index also rose to 97.36 last month. A 5.48-point increase propelled it above the 95-point threshold for expansion for the first time since September 2022, when inflation levels and energy bills were about to climb to new highs. As with the Output Index, growth was driven by the services sector sub-index, which increased by 6.48 points to 97.66. This improved sentiment comes amid significant falls in wholesale energy prices and revisions to economic forecasts, with the anticipated recession now set to be milder than previously feared.
In contrast, rising costs and mounting headwinds drove a slight month-on-month decline in manufacturing optimism which fell to 98.37.
BDO’s Employment Index reached a turning point after five consecutive months of decline and inched upward to 110.18. While the 0.21-point improvement is marginal as firms remain cautious, the uptick suggests that the underlying strength in the labour market has not been eroded by the recent downward pressure.
Consumer and input price pressures eased in February, leading to the fourth consecutive monthly improvement in BDO’s Inflation Index. The index now stands at 113.18, its lowest level since March 2022. A 0.98-point dip – weaker than the significant 3.75-point drop recorded in January – suggests inflationary pressures only waned marginally in February.
Despite improvements across the Output, Employment and Optimism Indices, the Inflation Index remains well above historic levels.
Ed Dwan, Partner at BDO said:
“It’s heartening to see output and optimism levels rise amid hope that fears of a hard recession had been overstated. But, as we can see from the small uptick in the Employment Index, which rose by just 0.21 points in February, firms are still concerned. While we’re seeing marginal improvements across the Indices, inflationary pressures remain a relentless challenge for UK businesses.
“As they strive to tackle economic headwinds and drive growth once more, businesses will need a helping hand from the Government in Wednesday’s Spring Budget to continue creating jobs and economic opportunities for communities across the country.”
ENDS
Overview of the BDO indices:
An overview of all four indices is provided in the table below, detailing figures for the last three months and the same month of the previous year, to allow for comparison. 100 = average value. Above 95 = positive.
|
|
February 2023 (Figures for this report) |
January 2023 |
December 2022 |
February 2022 |
|
BDO Optimism Index |
97.36 |
91.88 |
91.89 |
105.81 |
|
BDO Output Index |
94.10 |
90.92 |
94.45 |
120.67 |
|
BDO Inflation Index |
113.18 |
114.16 |
117.91 |
109.66 |
|
BDO Employment Index |
110.18 |
109.97 |
110.99 |
110.75 |
Note to editors
Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.
The organisations we work with are Britain’s economic engine – entrepreneurially-spirited, high-growth businesses that fuel the economy.
We understand the ambitions and entrepreneurial mindset of those we work with and have the global reach, integrity and expertise to help people and businesses succeed.
BDO LLP
BDO LLP operates in 17 offices across the UK, employing 7000 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.
BDO’s global network
The BDO global network provides business advisory services in 164 countries and territories, with 111,300 people working out of 1,803 offices worldwide. It has revenues of US$12.8bn.
Business Trends
BDO’s Business Trends is the ‘poll of polls’ regrouping data from the UK’s main business surveys, calculated by taking a weighted average of the results.
BDO’s Employment, Inflation, Optimism and Output Indices are the results of the quarterly CBI Industrial Trends Survey (and the CBI Monthly Trends Enquiry which is carried out in the intervening months), the Bank of England Agents’ summary of business conditions, the Markit and Chartered Institute of Purchasing and Supply’s (CPS) Surveys of Manufacturing and of Services; the DG ECFIN industrial and services confidence indices; the RICS construction market survey; the Manpower Employment Outlook Survey; and Eurostat’s monthly business surveys.
Taken together the surveys cover over 4,000 different respondent companies, covering a range of different industries and business functions. Together, they make up the most representative measure of business trends available.
Contacts
Ellie Chatterton
echatterton@headlandconsultancy.com
+44 (0)75 5117 1933